Mr Osborne responded by saying he would not ‘run away’ from the problems facing the UK’s economy.

‘We have a reminder today that Britain faces a very difficult economic situation,’ he said.

‘A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession.

‘Now, we can either run away from those problems or we can confront them and I am determined to confront them so that we can go on creating jobs for the people of this country.’

A fall in gross domestic product (GDP) between October and December came after promising 0.9 per cent growth in the third quarter.

Another decline in the current quarter would plunge the UK back into recession, with growth for the whole of 2012 remaining flat.

The Office for National Statistics said the ‘bumpy economy’ was on a ‘sluggish trend’ after forecasters had predicted a 0.1 per cent slump.

In the third quarter, the UK had bounced back from the longest double-dip recession since the 1950s.

However, the rebound was largely driven by one-off factors, such as the Olympics and the economy, which clawed back activity lost during the Queen’s Diamond Jubilee holiday.

Speaking to The House magazine ahead of the announcement, the deputy prime minister admitted the coalition had made mistakes that may have hurt the economy.

‘If I’m going to be sort of self-critical, there was this reduction in capital spending when we came into the coalition,’ he said.

‘I think we comforted ourselves at the time that it was actually no more than what [former chancellor] Alistair Darling spelt out anyway, so in a sense everybody was predicting a significant drop off in capital investment.

‘But I think we’ve all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible.’

The ill-timed comments are likely to anger chancellor Osborne and were seized upon by Labour who said it was the coalition’s first admission of ‘serious’ economic mistakes.

‘The real question is what Nick Clegg’s government is going to do about it,’ said Rachel Reeves, shadow chief secretary to the Treasury.

‘We have urged ministers to bring forward infrastructure investment and build thousands more homes, but they have refused to listen.’

David Cameron: In/out? (Picture: AFP/Getty)

Meanwhile, Mr Clegg used his radio show yesterday to criticise David Cameron’s bid to change Britain’s relationship with Europe.

Speaking on LBC, he hit out at the prime minister’s plan for an in-out referendum on Britain’s membership of the EU by 2017.

The Liberal Democrat leader said he was in favour of a vote if the country’s relationship changed but labelled the current plans as ‘completely vague’.

He said: ‘Where David Cameron and I part company is I simply don’t understand the point of spending years and years and years tying yourself up in knots first – so called “renegotiating” the terms of Britain’s membership in ways that, at the moment at least, are completely vague.’